A world of financial ruin

The present U.S. administration, building, certainly on
unpromising leavings from its predecessor, has shuffled from one
delayed reaction placebo to another to anesthetize financial markets
with a sequence of consciousness-lowering deferrals. First we were
waiting for the Simpson-Bowles debt commission, which held any actual
attention to the problem at bay for nearly two years. It reported quite
sensibly and sank like lead weight, but without a ripple. The
administration’s budget proposed a dynamic eventual freeze on 15% of
federal government expenses, a solution that underwhelmed almost
everyone.

The House Budget Committee chairman, Republican Paul Ryan,
proposed a plan that only cut the deficit initially by a little over
10%, but cut very appreciably into future outlays and was at least
something that could serve as an opening gambit. Barack Obama then
pilloried the congressman on national television in strictures usually
reserved for judicial or editorial condemnations of skinheads who steal
the hearing aids and Zimmer frames of the elderly and the mittens of
the new-born. Newt Gingrich — who succeeded the politically late Donald
“the Stillbirther” Trump as the most improbable candidate for national
office since the 1948 Progressive nominee for vice president, Glen H.
(“The Singing Cowboy of Idaho”) Taylor (“Oh Give me a Home by the
Capital Dome”), was so shaken by the implications of possibly having to
do something about such bone-cracking deficits that he called for a
“national conversation” about it, a tocsin that stirred the nation to
the depths of its finger tips.

When Barack Obama took office, the official normal money supply of
the United States was about $1.1-trillion. The $3-trillion in federal
budget deficits that have been run up since then have largely,
technically, escaped the money supply, though accretions have almost
doubled the official total, an unheard of rate of growth (about 40%
annualized) in a hard-currency country. About 70% of this debt has been
paid by the issuance of bonds to the central bank of the United States,
the Federal Reserve, a subsidiary of the United States government.
Whatever the balance sheets say, this has produced the effect of a
money-supply increase, which has brought pump-priming to a level of
over-achievement not seen since Noah felt the compulsion to build an
ark. And the annual trillion-dollar deluge is forecast to continue for
a decade.

The world’s reserve currency, the fabled vehicle of the “faith and
credit of the United States,” is now virtual money — a symbol for all
the other massive problems afflicting the U.S. economy. The imported
share of America’s oil consumption, for instance, has gone from 20% to
60%. Large suppliers like Iran and Venezuela have become hostile
countries. Yet Americans remain neurotic about paying half the gas
price of other oil-importing countries.

The cost per capita of U.S. medical care is $7,000 compared to the
average among Australia, Canada, France, Germany, Japan and the United
Kingdom, of $3,000; 70% of the people have immensely generous plans
that they love with passionate attachment and don’t pay for, either as
contributors or as taxable benefits, and the political class won’t
touch this. Unfortunately, much of the other 30%, 100 million
Americans, get what amounts to emergency health care only, and much of
it is uninsured and is billed to the recipient until the patient is out
of money, and only then provided gratis. Most of the largest states are
bust; Social Security, student loans, Medicare (for the elderly in the
U.S.) are all, also, in desperate need of an utterly cacophonous
national conversation.

Unless the United States has the most spectacular cognitive
awakening since Brunhilda, if not Lazarus, the laws of arithmetic are
going to assert themselves in Zeus-like terms.

Meanwhile, the European Union is a water-logged vessel in a
tempest, frantically bailing. In the six weeks since French finance
minister Christine Lagarde last bravely proclaimed her personal fantasy
that Greece would not default, the interest on Greek government notes
has risen from 20% to 26%. Germany will not indefinitely remain so
encumbered with guilt for the Third Reich that it will go on eating the
costs of the false prospectus Goldman Sachs assisted Greece and others
to file when they joined the Euro. The Germans have only tolerated it
up to now because the strain Greece, Portugal, Ireland, Spain and
eventually others put on the European banking system and the Euro,keep
the Euro in fairly close downward mode with the U.S. dollar, which
assists German exports. What a splendid irony that Germany, reviled as
the rampaging hun in olden time, is now being entreated by genuflecting
masses of its former ungrateful subjects to occupy and dominate them
again, at least economically. (The Bundesbank’s uniforms are less
stylish than those of the Wehrmacht.)

The EU is in hot contention with the United States as the Sick Man
of the Great World Economic Powers, because less than 40% of Eurozone
citizens work and over 60% are on benefits of some sort. But not to be
discounted in this gripping Olympic contest for total fiscal immolation
is geriatric, debt-ridden, stagnating Japan, a great but terribly
beleaguered and demoralized country.

If there are signs of hope, the place we might look is Britain.
Unlike the United States, the European Union and Japan, the United
Kingdom is making a respectable effort to reduce unsustainable debt
rather than simply devaluing the currency in which the debt is
denominated. Britain’s fiscal deficit is more than 10% of GDP,
approximately twice Canada’s rate and slightly higher than that of the
United States, but its government does have a somewhat believable plan
for reducing it.

The U.K. has never been a rich country and has not been a great
manufacturing country for decades. But it has a better work ethic and
political system than almost all of Europe and a better present
government than most. It is on a slow and perhaps shallow rebound from
New Labour, whose only novelty was that it took them three terms rather
than only the one required by Attlee and Wilson to bring the country to
the brink of ruin, speaks English, has a good legal system and has been
one of the most respected nationalities in the world without
interruption since the rise of the nation state approximately 700 years
ago.

Strangely and endearingly, Queen Elizabeth’s visit to Ireland last
week was the greatest success of royal diplomacy since her parents’
visit to the United States and Canada on the verge of war in 1939, if
not her great grandfather Edward VII’s visit to Paris in 1903 to seal
the Entente Cordiale. When Britain can’t lead as it often has, as
recently as with Thatcher in the ’80s, it still muddles through. The
Queen appears to have dispersed a great deal of ancient bitterness,
going back to Cromwell and beyond, in just a few days. The
adaptability, durability and astuteness of the British should not be
underestimated. Canada has inherited, refined and demonstrated some of
those qualities, and has a North American work ethic and immense
resources to boot.

Both countries, as they shore themselves up and brace themselves
for the disarray that the Americans and peripheral Europeans and
Japanese seem determined to generate, should keep their nerve, stay in
close touch, be prepared to embrace Germany and a few others when they
tire of being Europe’s baggage animals, and get ready for great
opportunities to lead and renovate.